The board of directors controls a corporation, but individual directors don’t always agree on the future direction of the company. Sometimes, boards can split into factions. A company’s CEO may align himself with one side and oppose the other.

In rarer circumstances, these disagreements can develop into corporate gridlock. This happens when the warring factions on a board are equally divided.

A fundamental principle of contract law is that a written contract is an agreement in writing that serves as proof of the parties’ obligations. What happens, however, when the parties forget some of the niceties of formalizing a written contract?

For one answer, consider the recent decision in the case of Shank v. Fiserv, Inc., in which the Eastern District of Pennsylvania addressed Fiserv’s motion to dismiss and compel arbitration at the outset of the case. Read More ›

Imagine sitting on the board of directors of a Fortune 500 company. You might think it’s a life of corporate jets, cushy board meetings, and prestige. (Although, the press will tell us, it’s not really that way anymore, thanks to Enron.) But even if corporate service would truly be the good life, what would happen to you if an aggrieved shareholder sued you for allegedly breaching your fiduciary duties to the company? Would you have to deplete your bank account to pay expensive lawyers for years of costly litigation?

The answer is found in the rights of indemnification and advancement (which we have previously discussed here, here, and here in connection with a trade secret case against a Goldman Sachs employee). Indemnification and advancement are two overlapping, yet different, rights that corporate directors, officers, and employees may have when it comes to the payment of their legal fees in lawsuits brought against them because of their corporate service.

Indemnification is the reimbursement of fees after those fees have been incurred. This right, as the Delaware Supreme Court has written, “allows corporate officials to defend themselves in legal proceedings secure in the knowledge that, if vindicated, the corporation will bear the expense of litigation.” The words “if vindicated” cannot be emphasized enough – they show that in order to establish a right to indemnification, the officer may have to prevail in the proceeding.

Advancement, meanwhile, is exactly what it sounds like: payment of fees by the company in advance of the final resolution of the proceeding. Advancement is an important companion to the right of indemnification, because it provides officials with immediate relief from the financial burden of investigations and legal proceedings. No vindication required – although the official may have to pay back what she receives if the final decision doesn’t go her way.

To determine an individual’s right to indemnification or advancement, courts will first look to the statutes governing the business, which may either require or permit those rights. Because many companies are incorporated in Delaware, we’ll take a look at what Delaware law has to say on this subject. Read More ›

The Dodd-Frank and Sarbanes-Oxley whistleblower laws are hot topics right now. A split of authority is developing in the federal courts over how an employee can qualify as a whistleblower and bring a retaliation claim under Dodd-Frank. And the Supreme Court will hear argument next Tuesday in a case, Lawson v. FMR LLC, that will require it to decide whether private employers can be subject to Sarbanes-Oxley retaliation claims by their employees.

In a decision last week, Judge Ewing Werlein Jr. of the U.S. District Court for the Southern District of Texas addressed the question of whether an employer had successfully alleged a claim under the Computer Fraud and Abuse Act (“CFAA”), such that the employer could properly bring its numerous claims against former employees and their companies in federal court. He ruled that the employer had properly pleaded the CFAA claim, and that as a result, the court had subject matter jurisdiction over the case. Beta Technology, Inc.v. Meyers, Civ. No. H-13-1282, ‎2013 WL 5602930‎ (S.D. Tex. Oct. 10, 2013‎).

Before we get into the substance of the decision, some background is in order. Subject matter jurisdiction is an important issue for federal judges. If there’s no basis for subject matter jurisdiction, a case doesn’t belong in federal court. First-year civil procedure students learn this rule from the venerable decision in Capron v. Van Noorden, in which the Supreme Court allowed a plaintiff to obtain reversal of a final judgment because he hadn’t properly alleged that the court below had subject matter jurisdiction over his claim.

The two main categories for federal jurisdiction in non-criminal cases are diversity jurisdiction and federal question jurisdiction. Diversity jurisdiction, as defined in 28 U.S.C. § 1332, permits the federal courts to hear disputes between citizens of different states – i.e., “diverse” citizens – so long as more than $75,000 is at stake. Federal question jurisdiction, which is defined in 28 U.S.C. § 1331, allows the federal courts to address “all civil actions arising under the Constitution, laws, or treaties of the United States.” And under 28 U.S.C. § 1367, once the court has jurisdiction to hear one claim, it can hear any other claims that form “part of the same case or controversy,” even when those claims drag additional parties into the mix. Read More ›

A recent decision by a federal court in Alexandria, Virginia, illustrates an important point about the trade secrets laws that is often missed: you can be liable even if you merely took your former company’s trade secrets (such as by downloading them onto your thumb drive) but did not use them or disclose them to anyone else. That’s what a company executive in the Alexandria case allegedly did, and the court allowed her former employer’s claim that she violated the Virginia Uniform Trade Secrets Act (the VUTSA) (which parallels many states’ trade secrets laws) to go forward. Read More ›

Last week, the Virginia Supreme Court reversed a trial court’s ruling that a non-compete agreement was unenforceable on its face as a matter of law. The VSC held that the trial court should not have decided the enforceability of the agreement on a demurrer (more about what that means below) because, in Virginia, whether a non-compete is enforceable (or valid) turns on whether it is “reasonable under the particular circumstances of the case” – that is, whether it is “narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.” According to the VSC, this means that the particular circumstances of the case matter, and that the enforceability of a non-compete should not be decided “in a factual vacuum.” Read More ›

If you've ever wondered how Labor Day came to be -- how it got its name, why Americans celebrate it (and what exactly we are supposed to celebrate, between the car sales, barbecues and end-of-summer beach getaways), we've got the answers for you right here, in a look at Labor Day we posted last summer. Enjoy it -- and then go enjoy the day! Our regular posts about disputes between executives and employers will resume once we get past this beach traffic.

On Tuesday, we examined the dismissal by a Georgia federal court of Lisa T. Jackson’s race-based discrimination claim against Paula Deen and others, and noted that, under Title VII, an employer may not discriminate against an employee for associating with employees of another race. But we don’t want you to be left with the impression that the association has to be between co-workers. Courts also have recognized “interracial association” Title VII claims for associations occurring outside of the workplace. The U.S. Court of Appeals for the Second Circuit is one such court. Read More ›